Macquarie Bank Fine Amount: £13,031,400 (Macquarie Bank London Branch)
Fine Date: 18 November 2024
Violation Period: June 2020 - February 2022
Primary Violation: Fictitious Trades
The Financial Conduct Authority (FCA) has fined Macquarie Bank Limited's London Branch (MBL) £13,031,400 for systems and controls failings that enabled a trader to conduct and conceal fictitious trading over a 20-month period. The case highlights deficiencies in the firm's internal control framework, particularly around trade monitoring, reconciliation processes, and broker quote verification.
The enforcement action centers on activities that occurred between June 2020 and February 2022, during which a trader on Macquarie Bank's Metals and Bulks Trading Desk recorded 426 fictitious trades, attempting to conceal trading losses.
In June 2020, the trader was asked to "de-risk" his Freight book due to escalating losses.
He was "benched" for two weeks to observe the market and revisit positions.
Rather than actually de-risk (which he admitted was possible but would take weeks), he began booking fictitious trades to make it appear he had reduced risk.
The Macquarie trader later described his acts as "an initial mistake made in response to being asked to de-risk the book, which he thought would only last for a day, but which then spiraled out of his control."
The trader employed two main strategies thereafter:
Entered fictitious trades into Macquarie Bank's risk management system (MTS), which appeared as "breaks" in End of Day (EOD) futures reconciliation.
Left trades open for several days before cancellation.
Entered fictitious trades with future clearing dates to avoid EOD reconciliation detection.
Continuously amended clearing dates to maintain concealment (continuously rolled forward clearing dates to stay ahead of reconciliation processes).
Learned of the $50,000 investigation threshold for backdated trades (i.e., trades less than $50,000 did not generate any alerting) and created offsetting fictitious trades to keep variances below this threshold.
Generated significant numbers of Cancellations, Amendments, and Backdates (CABs).
The trader was able to conceal their activity by:
Building relationships with junior Product Control Team members to minimize scrutiny.
Pre-empted challenges by providing superficial explanations.
Requested "holdouts" or adjustments to P&L while making amendments.
Arranged for "clean" emails to be sent to wider distribution lists to appear legitimate.
Falsified 46 out of 73 broker volatility curve quotes (63%).
Manually removed months of data before forwarding them to the Independent Valuation Team.
Altered figures to make positions appear more profitable.
These concealment strategies meant the trader was able to circumvent three key controls:
Product Control Team's daily P&L reporting process (final losses when unwound: $57.8 million).
End of Day futures reconciliation process.
CABs reporting and monitoring system (generated 9,269 CABs out of 13,311 total CABs for the entire Bulks Desk (70% of all CABs)).
The enforcement action resulted in two distinct penalties:
Macquarie Bank Limited - London Branch:
FCA Fine: £13,031,400 (after 30% early settlement discount)
Original penalty calculation: £18,616,400
Individual Trader:
Prohibition Order from performing any regulated activity
Would have faced a £72,600 fine (after 30% discount) if not for financial hardship
Original penalty calculation: £103,700
"The systems and controls in this case were ineffective to the extent that a relatively junior trader was able to identify them and take steps to avoid the Fictitious Trading being detected over a 20-month period. The deficiencies in the systems and controls left MBL without proper oversight and control of trading activity within the Metals and Bulks Trading Desk."
"The control only required the PC Team to request an explanation and investigate backdated trades greater than the threshold amount set at USD 50,000. This meant that multiple material backdated trades that netted to a P&L amount below investigation thresholds were not required to be analysed unless the USD 50,000 threshold was breached."
"The Fictitious Trading had not been prevented or detected earlier due to deficiencies in MBL's systems and controls relating to oversight and monitoring of trader positions. These systems and controls were relevant to trading on the Metals and Bulks Trading Desk and thereby created the same risk across significant areas of trading activity."